UPDATE 1-French consumers trim spending, Germans gloomy

* French consumer spending falls 1.2 pct month-on-month

* Slump in car sales drives the decline

* Businesses worry about production outlook

* Germany’s GfK gloomy

(adds detail, analyst quotes, German GfK fall)

By Vicky Buffery

PARIS, May 26 (BestGrowthStock) – French and German consumers are
drawing their horns in with data on Wednesday showing French
spending fell more than forecast in April as car sales slid,
while sentiment among German consumers fell, stoking fears on
the strength of euro zone recovery.

France’s national statistics office INSEE said on Wednesday
household spending on manufactured goods in the euro zone’s
second largest economy fell 1.2 percent on the month in April,
far exceeding a Reuters consensus forecast for a decline of just
0.5 percent [ID:nPAB008360].

The reading followed a marked 1.9 percent drop in
consumption over the first quarter of the year, following the
scaling down of the government’s car scrappage bonus scheme.

“April’s figures show car sales are still dropping which
means the correction in consumption could continue in the second
quarter,” said Olivier Bizimana, economist at Credit Agricole.

“That means that we could have weaker than expected GDP
growth in the period… simply because French growth is
essentially driven by consumption,” he said.

Consumer spending on manufactured goods sets the pace for
overall household consumption which in turn accounts for over
half of French gross domestic product.

France eked out a meagre 0.1 percent growth in the first
quarter of the year, lower than expected, as the scaling back of
temporary spending props weighed heavily on consumer spending.

Investors fear that without this financial aid, consumers
have little incentive to spend, with unemployment running at
10.1 percent, and fiscal rigour and pension reforms looming on
the horizon in the wake of the Greek debt crisis.

OUTLOOK IN FRANCE, GERMANY CLOUDY

German data on Wednesday showed consumer sentiment there was
likely to fall in June as the euro zone crisis weighed on
households’ view of the economy and income expectations.

The key GfK consumer sentiment indicator, based on a survey
of 2,000 Germans, fell to 3.5 for June from a revised reading of
3.7 for the previous month. Economists polled by Reuters had
forecast the figure to fall to 3.6 from a previously reported
reading of 3.8 for May.

“The debt crisis is leaving its mark on German consumer
confidence. It has brought to politicians’ and consumers’
attention the need for budget consolidation,” said Dekabank
economist Andreas Scheuerle, adding, “Now consumers expect a
weaker development in their incomes.”

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Graphic showing German consumer sentiment and French consumer
spending:
http://graphics.thomsonreuters.com/10/EZ_FRDECN0510.gif
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In France, consumers scaled back purchases of durable goods
by 4.4 percent in April, with car sales dropping 9.5 percent.

Purchases of clothes and shoes also fell 1.2 percent on the
month, and household equipment edged down 0.3 percent.

“Economic policies on pensions, spending cuts and so on,
plus unemployment and what’s happening in neighbouring
countries, all that suggests that household confidence (in
France) is going to remain low,” said Bizimana.

In separate data, INSEE said business confidence in the
French manufacturing sector edged up to 97 in May, from 96 in
April, just below the long term average of 100.

But the outlook for general production levels fell to -3
from +8, reflecting increased uncertainty over the economic
climate.

“We nevertheless stick to our view that the manufacturing
sector should continue to benefit from improving global economic
conditions and the fall in the euro,” said Joost Beaumont, an
economist with Fortis Bank Nederland.

An Infraforces survey published on Tuesday showed 91 percent
of French people believe the euro crisis will have an impact on
their day-to-day lives, and notably on employment and pensions.

The survey also showed 77.9 percent expect the government to
follow a policy of fiscal rigour, although ony 50 percent
anticipate strict austerity measures.

Investment Tools
(Editing by Crispian Balmer, Ron Askew)

UPDATE 1-French consumers trim spending, Germans gloomy